Moody’s: Vietnam’s banks show diverging capital profiles

The profitability of Vietnamese banks is strengthening as robust economic growth fuels credit demand and supports an improvement in asset quality, but challenges are also apparent, Moody’s Investors Service says in a recent report. “Credit growth is outpacing internal capital generation, weighing on capital ratios, and the State-owned banks – unlike their private-sector counterparts – have been slow in raising external capital even as their capital ratios slide,” says Rebaca Tan, a Moody’s analyst. “Against such a backdrop, a continued deterioration of capitalisation will weaken the competitiveness of the State-owned banks and ultimately their credit profiles,” says Tan. Under the report ‘Banks – Viet Nam: Deteriorating capitalisation will weaken state-owned lenders’ credit profiles’, Moody’s said that the average return on tangible assets (ROTA) at the rated Vietnamese banks rose to 0.97 per cent in 2017 from 0.70 per cent in 2016, while their asset-weighted average ratio of problem loans declined to 4.7 per cent at the end of 2017 from 5.9 per cent a year earlier. Looking ahead, Moody’s expects profitability and asset quality metrics to further improve in 2018-19, although rapid loan growth – at 21 per cent in 2017 – could mask asset risks. Specifically, the banks have increased their lending to retail and small- and medium-sized enterprises (SMEs), a positive trend for their margins due to the relatively high rates for such loans. At the same time, the shift away from lending to State-owned enterprises (SOEs) is positive because many SOEs remain in poor financial health. “However,… [Read full story]